Most of you are probably unaware of the up coming BioShock Infinite release(March 26th) but I can’t wait. So I am playing BioShock 1 & 2 once again and I just have to say I love the Ayn Rand commentary throughout the games. I was a hard core Ayn Rand follower for years only to slowly realize the flaws in her theories. In BioShock there is clear exposition of both individualistic and collectivistic thought. There is also capitalistic and communistic expositions. But it is crouched in a First-Person-Shooter (FPS). Bioshock 1 focuses primarily upon individualistic and capitalistic ideas and exposition which will be the focus of my first two posts. BioShock 2 has a much greater focus on collectivistic and communistic ideas and will be the focus of my later posts on this topic.

Background

In 1946 an industrialist and electrical engineer Andrew Ryan establishes Rapture, a city under the Atlantic ocean in order to free himself and society from those he labels as parasites.

“To build a city at the bottom of the sea! Insanity. But where else could we be free from the clutching hand of the Parasites? Where else could we build an economy that they would not try to control, a society that they would not try to destroy? It was not impossible to build Rapture at the bottom of the sea. It was impossible to build it anywhere else.” – Andrew Ryan

“A man has choices, I chose the impossible. I built a city where the artists would not fear the censor, where the scientist would not be bound by petty morality, where the great would not be constrained by the small.” -Andrew Ryan

Well Andrew Ryan succeeded in building Rapture and creating a society free from parasites, moochers, looters and those that would use force to take the property of another. This leads to great prosperity and advancement for Rapture, in particular scientific advancement leaps decades forward in a few short years. Unfortunately the society founded by Andrew Ryan was unstable and would collapse less than 15 years after being established.

There are 4 major factors that led to the fall of Rapture, each of which illustrate inadequacies in Ayn Rand’s theories. The first two were problems created at the founding of Rapture. By necessity Rapture was isolated from the outside world so as to prevent the parasites from controlling or destroying it, yet this isolation brought with it the first set of problems. Second Ryan invited the best and brightest from the world above. He recruited the greatest minds, artists, inventors, scientists and businessmen. But his selection for the best led to a top heavy society with great inequality which destabilized Rapture’s sociopolitical structure. The next two problems leading to Rapture’s downfall are related to the nature of man. Andrew Ryan believed that the market would regulate itself and thus no regulation should be imposed by the government. This allowed the proliferation of business practices which would greatly destabilize the city. The final problem faced by Rapture is the corruption of Andrew Ryan himself. As Rapture began to decline Ryan became desperate which led him to violating the central tenets of his own philosophy.

Isolation

By necessity Rapture required isolation; outside communication and goods were prohibited. This is the same as Galt’s Gulch in Atlas Shrugged where the gulch is hidden from the rest of the world and communication with the outside world is prohibited. Isolation is necessary is to prevent the outside from using force to take control of Rapture or to destroy Rapture. Ayn Rand was very concerned with the prospect of looters and parasites using force to control or destroy Galt’s Gulch. The population of Galt’s Gulch (or Rapture) is very small when compared with the other countries of the world. No matter how capable each individual was at defending themselves there would be no way to defend against such odds. That is why Galt’s Gulch is hidden by mountains in an unpopulated area with a defensive field that camouflages the whole valley. Rapture is hidden in the middle of the ocean making it equally difficult to locate.

The next reason for isolation is that building a completely individualistic / capitalistic society requires that the society is not infiltrated by socialists or collectivists. If collectivism were seep into society it could fester and lead to collectivistic actions and policies which according to Ayn Rand are immoral. To deal with this the residents of Galt’s Gulch are screened extremely thoroughly. Each person was watched carefully for extended periods of time. Their words and actions were studied for any sign of collectivism. Even after that they were screened in an interview before it was decided that their moral code was sufficiently pure enough. Through this selection process the world’s population was reduced to a single small town. But since every individual in Galt’s Gulch had rejected collectivism and socialism completely then they only had to worry about collectivism entering the gulch from the outside. Thus isolation helped to maintain purity of morality and inhibit the disease of collectivism from spreading to Galt’s Gulch.

The problem is that Rapture is a vast metropolis not a small town. Since Rapture needed so many more to build it there was no way to screen each individual as carefully as Galt’s Gulch. Far too much manpower was required so Rapture had to be far less selective. Therefore many entered Rapture who may believe in part or whole that collectivism is the correct route for society to follow. Though isolation helps to combat this issue. Since there is no contact with the outside world it is easier to utilize propaganda to sway the people. In fact Andrew Ryan brought many artists, singers and writers with him to help spread his ideals and convince Rapture that his way is the best way.

Though isolation brings with itself whole new problems. Despite Galt’s Gulch being populated by the best and brightest of the world there is no way it could have developed modern industry and science. There simply were not enough people there. The town was rather small and there was no way that there would be enough people to deal with both maintenance of the society (growing food, maintaining buildings, producing clothing and items necessary for survival) and advancement of science or technology. In order to produce a single hinge for a door the iron would need mined, smelted and forged. But Galt’s Gulch did not have a bunch of extra laborers to mine and work menial jobs. Rather everybody there was somebody of superb skill, intellect and knowledge. It is a huge waste if the greatest electrical engineer in world spends his time wiring light switches and maintaining the power grid because there aren’t enough people to do that for him. That would take away his ability to improve the system and innovate since his time would be taken up with lesser tasks. In fact a society needs to have a certain level of population to support specialization. The greater the specialization the greater the support structures need to be. If a great inventor has to produce each and every item s/he works with then s/he has far less time to invent and improve designs. But if the same inventor has others producing the components then s/he can focus on inventing.

Rapture dealt with this issue by including more people than Galt’s Gulch. Unfortunately isolation still inhibits the productivity of a place like Rapture for the same reason it does in Galt’s Gulch. Yes there are more people to create the materials for great inventors or scientists to work with. But all of those are limited to the materials produced in Rapture since no outside goods were allowed. Now consider that it is rare that a single city can produce all of the goods and products found in modern society. Instead modern cities rely on trade with others to gain raw materials and components in order to produce many of the goods we see today. Without that trade it would be extremely difficult if not impossible to produce everything we have today. Yet Rapture (and Galt’s Gulch) propose that a single city could mine all raw materials, process the raw materials, produce components and parts as well as create final products. All the while having enough time to feed the population, develop new products and advance science. This is simply not possible when you consider the labor force you would need to accomplish all of that. Beyond that there are few if any locations on this planet with access to all raw materials needed for advanced technology. The issue isn’t just with minerals, metals and oil but also with things like rubber and uranium.

Without all of the raw materials and constituent components / parts available the society looses much of the benefit of capitalism. People are no longer able to focus purely in their specialty and advance the field. Rather they are forced to produce or process parts and raw materials in order to get to the point of trying to advance the field. Or they are forced to work without certain items which can completely eliminate the potential for advancement in some field. For example if radioactive material is not available then there is no way to develop medical radiology.

Additionally isolation reduces competition since trade is restricted to a single city’s businesses. Every business depends on a consuming population and the size of the population heavily influences the rate of consumption for various items. Yet isolation restricts the size of that consuming population. If the population is too small it may be unable to sustain multiple businesses of the same type due to lack of demand. How many vineyards do you think a small town can sustain? How many foundries could a town sustain? The limited population due to isolation restricts the amount of competition that can exist in the market. Without competition there is less incentive for efficiency and innovation which are two of the primary benefits of a free market system.

Finally isolation leads to black markets. There will always be people who want products from the outside and there will always be somebody who will get it for them at a price. Consider that despite everything the US has done it still can’t stop illegal immigration or drug smuggling. Ayn Rand is able to deal with this because everybody in Galt’s Gulch voluntarily chose to live there fully knowing the consequences of their decision. So they would not chose to violate their oath and seek outside goods since everybody there has such high moral integrity. But that is an unrealistic model; not every man is a perfect saint. People lie, cheat, steal and hurt each other. To expect every person to hold true to their word is foolish. In Rapture smuggling became a major problem, it got to the point that anybody caught with contraband was executed.

Realistically smuggling is a problem because it creates an underground market. Black markets lead to problems with violence since they are unable to appeal to legal authorities to solve disputes. Rather those involved have to take things into their own hands. Acquisition, transportation and sale of contraband is much easier operating in a group. Thus smuggling can lead to the formation for criminal organizations which is dangerous in itself. Criminal organizations have a tendency to expand and diversify their activities. With smuggling providing money and manpower for the organization they can expand to things like extortion, rigging games and sports, blackmail, counterfeiting or identity theft. The smuggling itself does not necessitate that organized crime will expand to those operations but it does provide an infrastructure to do so. That is it brings together criminals and provides them with the resources to expand should they chose to.

Top Heavy Society

Both Rapture and Galt’s Gulch was built on try to recruit the best and brightest of all humanity. Both focused on obtaining top industrialists, scientists, artists, bankers, inventors, doctors and all other of great skill or intellect. The problem is that this creates a top heavy society to start.

In Galt’s Gulch this is mitigated by the fact that everybody there is a great person. They are all inventors, bankers, industrialists, scientists and such. Also they were all wealthy. But when everybody is both wealthy and brilliant then there is little difference between individuals in the population. Since most people in Galt’s Gulch are relatively equal in those regards then there is not much inequity. For that reason Galt’s Gulch doesn’t really even take notice of the fact that it is completely populated by the best of the best.

Yet in Rapture not everybody could be a great person. There is simply too much need for workers of all types. Rapture needs janitors, repairmen, cooks, labors, factory workers, nurses and everything else. The whole city could not operate just with scientists, inventors and doctors. So many people came to Rapture to fill the various needs and try to scrape out a living for themselves and their families. Yet the heavy recruiting of the upper echelons of society to join Rapture led to a disproportionately large upper class. While at the same time huge portions of the population were extremely poor and had not government safety net to fall back on. This creates a bleak contrast between those with wealth and those without. It is precisely this contrast which makes inequity of wealth distribution salient to the public as a whole.

Though salient inequality may create discontent in the population, but if there is a great deal of socioeconomic mobility then people will not take extreme actions. Social mobility provides an individual route to address inequality, that is people can work toward improving their own situation rather and trying to change the whole system. Unfortunately in Rapture social mobility would be limited due to the top heavy society. With so many people already at the top with tons of wealth which weighs the whole game in their favor. Even somebody as intelligent and skilled as Andrew Ryan would find it difficult to climb from the bottom to upper class in Rapture. The wealthy already own or control so much that it is difficult for others to work their way in. As mentioned before, a isolated society has a limited population to market to which limits the number of businesses of a particular type that it can sustain. Thus if a well established business supplies the needs of the market it could be extremely difficult for a new competitor to break into the market. The market would not be big enough that the competitor could slip in and establish itself without challenging the larger better funded business. Instead the market is small so any gains by a new business would be taking away from the larger corporation which gives the corporation good reason to drive the small business out. This has been shown in regards to monopolies and how they drove out competition in order to maintain control of a market. Though there need not be a monopoly, even if there are two or three established competitors in a market they can use their power to drive out any new businesses. They all would have a vested interest in eliminating their competition in order to maintain a higher market share so they all have reason to drive out new businesses.

So now Rapture is in a situation with a disproportionately large wealthy population, a huge wealth inequality and minimal social mobility. This is an unstable situation for any society. This creates malcontentment in the masses as they see inequity in the system yet have no means by which to improve their own situation. This is further compounded by the isolation of Rapture. People are not free to leave Rapture and seek opportunities elsewhere, they are physically trapped. But they are not free to move up in society, they are socially trapped. As dissatisfaction builds the chances of population taking drastic actions increases. Which in the end is what caused the downfall of Rapture. The poor rose up in a revolt against the existing system.

Though in reality free market advocates would say that capitalism allows for social mobility by providing all an equal opportunity. Also they would point out that the real world is not a closed system like Rapture or Galt’s Gulch so new businesses can break into the market. Yes it is true that it is not exactly like Rapture but in laissez faire capitalism like espoused by Ayn Rand there are no public schools or libraries. The only job of the government is to maintain military, police and courts. This leads to a similar situation as Rapture. Those who start with more have greater opportunities than those who start with less even if everybody plays by the same rules. The wealthy can afford better schools and education. The poor can’t afford as good school if they can even afford to educate their children. So wealthy children start with an advantage purely based on their parents. Also parents with wealth can help get their children started when they become adults. They can support them or provide them with a college education or a loan to start a business or even something as simple as a car. It is difficult for an individual to work their way up in the world if you start with debt from college and buying a car and everything else. If you start with debt you spend so much of your time and energy simply paying back that debt while getting nowhere. If you start without debt then all of your energy can move you forward. Furthermore wealthy individuals tend to know more wealthy individuals. So they have connections that can get their children ahead. My mom was a nurse and at one point hooked me up with some people she knew so I could try and get a job as a psychiatric technician. It paid $13/hr and helped me get through college. Somebody with wealth could do the same thing yet their kid could start at $100k not $13/hr.

My point here is that even if the rules of the game are the same for everybody those who start at the top have an easier time staying there. Whereas those that start at the bottom have a difficult time making it to the top. It is not purely a matter of personal attributes that make one successful. Sometimes it is simply being born to the right person and having access to resources not available to most people.

At this point rather than engaging my last two points I think I will post this and finish it later. I already have 3100 words and I have been working on this for a couple days. The issues of market self regulation and human corruptibility will be addressed in the next part to this series.

I am getting so sick of the fear-mongering in politics, it has been non-stop for months and months. First we have the election with all the lovely fear-mongering about both sides. Both Romney and Obama made it sound like it would be end of civilization if the other got elected. Then Sandyhook happened which was a great tragedy. But gun control advocates and gun right advocates seized on it and turned to fear as a primary message. Gun control advocates made it sound like Sandyhook was a regular occurrence and we could expect it to happen all over the country unless we restrict gun ownership. Gun rights advocates have been wailing about how guns are necessary to fight the evil government which will show up and take over our lives if gun ownership is restricted in any way. Then we move on to the fiscal cliff over the new year and all of the dire prognostications that went with it. Our economy would completely collapse and the world would follow with us. We would all loose our jobs and industry would be destroyed. But that was avoided by kicking the can down the road.

So now we are at sequestration. If you listen to Obama a 2% cut in federal spending is going to completely destroy our country. The way he talks about the dire consequences makes it sound like our country is about to fall apart. Well we are pretty screwed if the country will fall to piece over a 2% reduction in federal spending since we currently projected to spend 131% of federal revenues this years. That means we would need a cut a lot more than 2% in order to stop increasing the national debt let alone reduce the national debt.

Then even after the sequestration showdown this week we have another fear-mongering opportunity. The debt ceiling still hasn’t been addressed yet. Before long we are going to have the same game of chicken we faced in August 2011 and at the beginning of this year already. There will of course be catastrophic predictions on both sides. If we keep racking up a huge national debt then our economy will collapse according to some. If we don’t keep spending at the same rate the economy will collapse according to some. If we don’t raise the debt ceiling in time our interest rates will go up causing our economy to collapse according to some.

Though this only scratches the surface of the problem. The real problem with fear-mongering is that it inhibits any real discussion or attempt to solve the nation’s problems. Human are emotional beings and emotions can easily overcome rational thought. So politicians use emotion as a method of manipulating behavior. The problem is that the whole debate is framed in an emotional manner which makes it difficult to discuss rationally even if you are not emotionally involved. That is because all of the policy options on the table are emotionally based not rationally. So they don’t lend themselves to rational analysis and in fact may be nothing more than knee jerk reactions. Also when both sides are successful are emotionally motivating people to action then a good chunk of the population is not in a position to really analyze the arguments on both sides. Rather emotion has decided which side they stand on and they may not even care what the other side has to say. Furthermore in order to emotionally motivate people it necessary for the message to be extreme. It is hard to get everybody worked up over something that is only of moderate concern or minor concern. Instead the message must be framed as conflict of great import for the future of our nation. This polarizes the electorate. But at the same time it results in politicians staking out extreme claims in order to emotionally motivate the populace. Yet when both sides have staked out extreme positions then little can be done to reconcile the issue because it is too polarized. So that causes a political stale mate where neither side can act to solve the problem being faced.

Unfortunately there is no real solution for fear-mongering. Humans will always be emotional creatures and our emotions can easily overwhelm our rationality. Politicians will always be in the business of manipulating human behavior for their benefit and emotions are an easy target. And there is no reasonable way to restrict fear-mongering since it is based in freedom of speech.

After the Citizen’s United decision I turned to my wife and said we might as well give corporations the right to vote at this point. They have already have most rights and we may as well finish the job and make corporations citizens. Of course I was be facetious since I think Citizen’s United was probably the single worst SCOTUS decision in my life time.

But now it looks like MT wants to finish the job. As pointed out by Secular Jurist a proposed bill would grant corporations, companies, partnerships and firms the right to vote. If this bill were to pass then corporations would no longer have to funnel their money through Super PACs for everything, they could vote themselves also. That means businesses could set up fronts to get more votes. They could simply register a ton of firms, businesses, partnerships and corporations. Then as long as those groups own “real property” within the municipality they could vote. Well consider that somebody who wanted extra votes could simply buy a plot of land, subdivide it as many time as needed. Then sell it to a variety of business fronts so they own real property. At that point they could vote for each and every business front they created. That means people could literally and legally buy votes.

Though if you thought that was bad don’t worry it gets worse. Not only can businesses vote in elections they can also run in elections. Sections 4, 5 & 6 provide provisions for businesses to run for municipal office, mayor or city council. That means a corporation could literally become the mayor of a town. Who needs lobbyists anymore when you can set up your company as the mayor and/or city council? This would massively enhancing corporate control of the US political system. Not only could companies directly vote, they could create new entities to give them extra votes thus providing those with enough money multiple votes in elections. But beyond that companies can even be elected to office and hold direct control over parts of the government.

Combined with the flood of money from the Citizen’s United elections in MT could simply be bought. Anonymous donor can fund shadowy businesses in order to create entities to vote and run for office which could allow them to swing elections in their favor. Finally here is a link to the bill as introduced. A couple things for you to note when you read this if you haven’t read legislation before. Everything with a ‘strike’ through would be removed from current law if the bill becomes law. Anything that is underlined would be added to current law if the bill becomes law.

Provision for vote by corporate property owner. (1) Subject to subsection (2), if a firm, partnership, company, or corporation owns real property within the municipality, the president, vice president, secretary, or other designee of the entity is eligible to vote in a municipal election as provided in [section 1].

(2) The individual who is designated to vote by the entity is subject to the provisions of [section 1] and shall also provide to the election administrator documentation of the entity’s registration with the secretary of state under 35-1-217 and proof of the individual’s designation to vote on behalf of the entity.

When deciding which of two products to buy most people will compare the price and the quality. Other factors may come into play like additional functionality or aesthetics or personal preference but nearly all of us will at least look at the overall quality of the product and the price when deciding whether or not to purchase said product. Price and quality are necessary feature to compare for a free market to operate. We need to be able to compare what we get from one provider (store, restaurant, service, etc) to what we can get from others then we have to decide which is preferable.

Unfortunately that is not the way medicine works. Most of us pick our medical providers based purely on our insurance. We have some choice but not a lot. Yeah you might have quite a number of primary care physicians (PCP) to chose from but if you need anything more you need a referral. Do you get any say in who you are referred to? Not really, your PCP writes it up and gives it to you (or mails it). Then you go to the person you are told to go to. Why? Because if you don’t it may not be covered and no matter how expensive the service may be, it will definitely be more expensive without insurance coverage. In fact most people have no idea of the true costs of any of their health care. Even if you do take the time to read the bills they send you it is hard to make any sense out of them. On top of that you might get 3 or 4 different bills for the same service from the same provider with different amounts on it. Then add in the fact that if you do much more than a Dr visit you may get bills from several different providers. When I went to the ER last I got one bill from the ER Dr, one bill from the ER, one bill from the radiologist and one bill from a consulting Dr. That is 4 bills for one visit. There was no way to know before going how many bills I might get let alone the price tag. When my wife had ankle surgery we paid the surgeon and the facility up front. But after we still got at least one or two additional bills from the surgeon, the surgery center and the anesthesiologist. By the end I had no clue what I was paying for or exactly why I was just sending them money because I owed it.

On top of that most of us have very little information to gauge the quality of health care. Yeah we can read reviews but that say more about bedside manner than health outcomes. Most people don’t know enough about medicine to judge whether are Dr is good or not. Rather reviews are mostly about whether the individual liked the Dr. We also have no clue which hospitals are the best and worst. We don’t know which ones have more or less complications after surgeries. So how do we pick providers? Well many go from word of mouth, others pick a convenient location, some have preferences about the type of Dr (DO vs MD or Psychologist vs Psychiatrist) but very few are picking based on objective measures of quality nor based on the cost of the provider.

This is one major problem with our health care system. There is no transparency for consumers of health care. Simply put we are flying blind when it comes to health care; we have no idea about costs or quality. That means that the consumers of health care have no ability to drive the market through their choices. They don’t have enough information to objectively compare providers so we can’t select one over another based on quality or costs. Without consumers driving the market that only leaves insurance companies and providers driving the market yet they both have a vested interest in maintaining high medical costs. Providers benefit directly from higher prices. Insurance companies also benefit from higher prices. Consider that if an insurance company earns x% off the total of all insurance premiums then if the cost of insurance doubles they can earn twice as much while maintaining the same % profit margin.

What we need is for consumers to have more influence in the market. First and foremost we need some transparency so that consumers are capable of making a rational decision about health care providers and costs. That would require an objective measure of quality for each provider. I touched on this in my post “Health Care, Incentives and Waste”. There are methods for looking at insurance companies, hospitals and providers to measure health outcomes. It involves measuring negative outcomes like ER visits, complications, hospital admissions, hospital readmissions and potentially unneeded ancillary services (like lab work, xrays, MRIs etc). Then the providers are weighed based on the population they service so that we can compare one provider to another and not penalize some for working with populations that may have overall worse health outcomes. When all is said and done providers can be scored based on their overall quality. That would give consumers an objective manner to compare the quality of different providers.

Next some form of cost measure needs to be available to consumers. I understand medicine is complicated and you don’t always know what is going to be needed until after you are finished. In some ways it is like getting your car fixed. You don’t always know what is really wrong until the whole thing is torn apart and at that point you just have to fix whatever needs done. But we could get some type of guideline for costs. A garage should be able to tell you how much it would cost for an alternator for a 2007 Mazda 5 assuming there are no other issues. Well we need something similar for health care. We need an idea how much in general a certain type of service is going to cost. Again there are tools already in existence for this which could help consumers in making decisions. Basically it involves grouping related diagnoses together so that they are mostly similar. Then examine the services and costs associated with that type of diagnosis. From there an average cost for that diagnosis related group (DRG) can be calculated and compared between providers.

Armed with a measure of cost and quality the consumers of health care could begin to make rational decisions about health care consumption. That would allow the consumers to begin to drive the market instead of insurance companies and providers driving the market. It could create some competition to drive down costs. It could also provide incentives to provider to improve the quality of their care and/or reduce the cost of care. And at the very least it could give consumers an idea of how much something may cost before receiving health care rather than finding out months later when the bills start arriving.

Though many still have only limited choices because of health insurance. The insurance company specifies who we can see and what services we can receive. We might be able to pick our primary care physician (PCP) but we may have no choice when it comes to referrals or out patient centers (like physical therapy or surgery centers). So even with information of cost and quality of health care consumers have limited influence over the market because consumers aren’t completely free to chose providers.

In order for consumers to have greater influence over the market we need more choices in regards to health insurance. Most of us get insurance through our work, we have no choice as to what insurance company we end up with. Rather our employer determines what insurance they will offer and we can take it or leave it. At best we get to chose between our insurance and our spouse’s insurance. This limits consumers choices and thus limits their influence over the market. To solve this problem health insurance should be disconnected from employment. Now some will say that health insurance is connect to employment because of market pressures. That may be true but there were other influences too. The two big ones are taxes and group rates. Employers and employees don’t pay taxes on health insurance premiums. This gives both incentive to connect insurance to employment. This one is easy to deal with. Offer employers the same tax break if they give you a health insurance stipend in your paycheck. It would be the same amount of money but just put directly into your paycheck, your employer can then treat those stipends the same has health insurance for the purposes of taxes. The individual would get their tax break when they files their income taxes because the stipend plus any other money spent on health care could be deducted from their income. That would allow consumers more choice in regards to their health care.

The other major reason for insurance being connected to employment is group rates. The larger a risk pool is the more stable the costs incurred are and thus projecting the costs into the future is more accurate. This is the cornerstone of actuarial math (insurance math) and it is the basis of much of what insurance companies of all types do. They need to have an idea how much things will cost and how much they get in premiums in order to operate. Smaller groups are less stable and thus riskier which then requires extra padding in the premium in order to account for the margin of error. That is why it is cheaper to get insurance through your employer than as an individual. Well that is all about to change. The health care exchanges are going to be operational soon. Those will utilize the government’s ability to create a very large risk pool while allowing the market to decide how to cover those individuals. Simply put it will allow large numbers of individuals to group together in order to receive group rates for insurance rather than individual rates. It also allows individual to pick and chose their insurance and level of coverage. Thus if employees were to receive a health care stipend they could pick the insurance they want from a health exchange and the price should be fairly comparable to the group rate they would have received through their employer.

Therefore if consumers have information about cost and quality combined with the ability to chose providers themselves then consumers could begin to influence the health care market. They could help to create greater competition and could help in reducing costs. This is yet another piece in the puzzle needed to get health care costs under control. Though it needs combined with other methods of controlling health care costs such as detailed in my previous posts “Health Care, Incentives and Waste” and “Medicare Overpayment of Medical Supplies and Equipment“.

PS- Much of this is inspired by a piece in the NY Times and one on NPR (the podcast covers this from about 5min to the end) about the difficulty of determining that cost of health care as a consumer. Also thank you ReasoningPolitics for the NY Times article, I have thought about this a number of times but your article inspired me to actually write it down. Finally the part about disconnecting health insurance from employment came from the Heritage Foundation which got me thinking about this problem in a different light.

Do you love your blog? Do you think that your posts are better than many others out there? I know I do and I bet many of you think the same about your own blog. But is that because your blog is really that much better? OR is it because of all the effort you put into it?

A recent study may suggest that you may overvalue that which you have invested your own labor into. This is called the Ikea effect which is “the increased valuation that people have for self-assembled products compared to objectively similar products which they did not assemble.”

In the studies the researchers had participants build Ikea boxes, sets of Legos or folded origami. Then the participants evaluated the value of those objects which was compared to the control group who did not build anything yet evaluated the value of the same objects. The results were clear that those who built the object valued that object to a far greater degree than others valued the objects.

Now the study applied to physical objects not less tangible objects like blogs or ideas. But if the investment of effort increase the valuation of the product then it is reasonable to assume that applies to ideas as well which may have some implications for bloggers. For one if we invest a lot of effort into developing and posting our own ideas we may come to overvalue those ideas. That could bias us when comparing our ideas to alternates on the same subject. Also it could close us off to criticisms or flaws in our own ideas despite the conscious desire to discuss and improve upon the ideas we present. It would be quite the ironic twist if our attempts to put forth our own ideas actually results in closing us off from legitimate criticisms or improvement to those ideas.

So do you love your blog because it really truly is good? Or do you love it because you invested the effort to create it?

For a long time Medicare has overpaid on medical supplies and equipment for beneficiaries. They paid based on a fee schedule which is a list of types of products and prices that they will pay. The problem is that fee schedules are prone to abuse. First if they are to be even remotely effective they must be updated regularly to reflect the current cost of supplies. Second when a fee schedule states that Medicare will pay up to $X then suppliers simply charge that amount. This is why you see so many commercials about supplying Medicare beneficiaries with scooters or diabetic supplies or what not.

Luckily Medicare is finally doing something about this problem. They made the following announcement January 30th, 2012:

The Centers for Medicare & Medicaid Services (CMS) today announced lower prices that will go into effect for Medicare beneficiaries this July in a major expansion of the Medicare Durable Medical Equipment, Prosthetics, Orthotics, and Supplies (DMEPOS) Competitive Bidding Program. This program, already underway in nine areas of the country, is an essential tool to help Medicare set appropriate payment rates for DMEPOS items and save money for beneficiaries and taxpayers. Traditionally, Medicare pays for DMEPOS items using a fee schedule that is generally based on historic supplier charges from the 1980s. Numerous studies from the Department of Health and Human Services Office of Inspector General and the Government Accountability Office have shown these fee schedule prices to be excessive, and taxpayers and Medicare beneficiaries bear the burden of these excessive payments.

Under the program, DMEPOS suppliers compete to become Medicare contract suppliers by submitting bids to furnish certain items in competitive bidding areas. The new, lower payment amounts resulting from the competition will replace the fee schedule amounts for the bid items in these areas. The first round of the program, which went into effect in nine areas of the country on January 1, 2011, has saved hundreds of millions of dollars while preserving beneficiary access to quality items. The payment amounts from the supplier competition for Round 2 of the program are projected to result in average savings of 45 percent as compared to the current fee schedule prices. The payment amounts for the national mail-order program for diabetic testing supplies are projected to result in average savings of 72 percent. Round 2 of the program is scheduled to go into effect in 91 major metropolitan areas on July 1, 2013. The national mail-order competition will be implemented at the same time and will include all parts of the United States, including the 50 States, the District of Columbia, Puerto Rico, the U.S. Virgin Islands, Guam, and American Samoa.

So what does this mean? It means that Medicare will longer pick a number out of a hat to decide how much to pay for medical supplies. Rather the market will determine what a fair price for it is. Huh, what a concept?

The next question is how much will this save the country? Well I can’t determine that because they are only applying this to specific categories of products. What I can tell you is that in 2013 Medicare is projected to spend $3.1 billion on non-durable medical products and $8.5 billion on durable medical equipment (CMS National Health Care Expenditure Projections). Also I can tell you that in round 1 of competitive bidding Medicare saved:

I would like to note an observation, the average of those % savings is 44.8%, the intro mentions and average of 45% which is what 44.8% would round to. That implies that the average reported is a biased average of the saving. The correct average should be a weighted average based on the amount spent in each category. That means we can’t apply the 45% saving to the total $ spend on durable and non-durable medical supplies / equipment numbers I cited above since we don’t know how much is spent in each category. But what is apparent is that this program if implemented nationally for all types of products could easily save the country several billion dollars.

Furthermore I would like to point out that some states use fee schedules for items Medicaid covers. I don’t know which all do that but I know TX does. So implementing a similar program for Medicaid nationwide would likely save a lot of money too.

At this point you are probably wondering if this has had an impact on beneficiaries. The last thing we want to do is save money on health care at the cost of the health of beneficiaries. Well according to the same announcement by CMS round 1 has not had negative health impacts on beneficiaries.

Importantly, the program has maintained beneficiary access to quality products from accredited suppliers in the Round 1 Rebid areas. Extensive real-time monitoring data have shown successful implementation with very few beneficiary complaints and no negative impact on beneficiary health status based on measures such as hospitalizations, length of hospital stay, and number of emergency room visits compared to non-competitive bidding areas.

Thus Medicare has finally realized that the prices for medical products needs to be based on current fair market prices. Doing so has saved an immense amount of money without sacrificing the health of beneficiaries. Now this same idea needs expanded to cover other area of Medicare as well as cover Medicaid programs. This is one of the means by which we as a nation can bring down health care expenditures without a negative impact on the health of the nation.